tv Nightly Business Report PBS June 21, 2010 7:00pm-7:30pm EDT
>> you just can't view this solely in the context of what the impact is going to be between china and the u.s. it's going to be the impact between china and the rest of the world. >> susie: a change of heart for china, it will now allow more flexibility in its exchange rate. >> tom: what it means for products made in china, or if your company does business there. you're watching "nightly business report" for monday, june 21. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: good evening, everyone. china's currency was the big topic for american businesses and investors today. tom, the chinese yuan saw its largest single-day move in the last five years. the rally came after china made the surprise announcement over the weekend that it would allow the markets to set the yuan's value instead of a formal peg to the u.s. dollar. >> tom: susie, stocks rallied on the news this morning with triple digit gains on the dow, but as the day went on the rally fizzled as investors worried about the impact of the changes on the global economy. >> susie: so what does the rise of the yuan mean for american
businesses? darren gersh reports. >> reporter: yes, wal-mart buys more stuff from china every year than most countries, but analysts say you may have to look very hard to see a difference in the prices you'll pay when you buy your kids' clothes. >> wal-mart as a global business, i think, will not be affected very much. >> reporter: shang-jin wei is director of columbia university's chazen institute of international business. >> what i expect wal-mart to do is to try and get chinese suppliers to cut down their cost, to cut down their margin, and wal-mart being big, probably will get away with demanding that and get much of what it demands. >> reporter: and while americans worry about losing jobs to china, chinese businesses worry their labor costs and currency costs will force customers to move elsewhere. >> i expect wal-mart to look around and look hard for alternative suppliers outside china-- in vietnam, in india, mexico, and elsewhere. they potentially can replace
china. >> reporter: what about u.s. exporters? boeing isn't expecting a big boost. it takes years to deliver a plane and over that time currency prices bounce up-- and down-- muting any competitive advantage. china is a top export market for caterpillar. the company is encouraged by beijing's currency moves. but when it comes to buying big equipment, it doesn't see currency as the driving factor. the national retail federation's erik autor says it's important to remember competitors in europe and japan will most likely see their currency moving the same direction as the dollar. >> you just can't view this solely in the context of what the impact is going to be between china and the u.s. it's going to be the impact between china and the rest of the world. >> reporter: a rising currency does mean millions and millions of chinese consumers will have more money to spend. and that's an opportunity for every u.s. business, not just manufacturing in china, but selling there too. >> they are probably going to see an increase in sales as
chinese consumers find that the goods on the shelf in the stores in china are going to be cheaper, because their currency is worth more. >> reporter: most china experts expect the yuan's rise will be gradual-- just a few percentage points this year. that's not likely to satisfy critics in congress, but it will assure the bottom line impact on u.s. consumers and companies is modest. darren gersh, "nightly business report," washington. >> tom: here are the stories in tonight's "n.b.r. newswheel." optimism about china's decision to allow a flexible yuan lost steam late in the session. the dow lost eight points, the nasdaq fell 20 points, and the s&p 500 fell four points. volume dropped off friday's pace on both the big boards and the nasdaq. many troubled homeowners looking for help from the obama administration are still in need of help. the treasury department says more than a third of borrowers have dropped out of the mortgage rescue program. about 436,000 at risk homeowners have left the program in the
last 15 months. the administration says borrowers can get help in other ways. but some analysts fear the majority of them could still wind up in foreclosure. still ahead, hammering out the new rulebook regulatory issues surrounding both wall street and main street. we'll talk to a lawmaker who's been leading the charge on overhauling the financial system: representative luis guiterrez of illinois. >> susie: a group of oil services companies went to court in new orleans today asking a federal judge to lift the obama administration's deepwater drilling ban. the judge will decide by wednesday whether to end the six month moratorium in the gulf of mexico. most of the 33 rigs working in water more than 500 feet deep shut down operations once the ban went into effect. more than a dozen rig suppliers are suing, saying there's no proof deepwater drilling is a threat and five more months of no work will cost 11,000 jobs. the administration says the halt
is needed to be sure the wells are safe in the wake of the b.p. explosion and spill. so far, b.p. has paid $2 billion as it continues to work to contain the gushing oil and pay claims for damages. to date, more than 65,000 claims have been submitted and just under half have been paid, totaling about $105 million. today, the coast guard said work on the relief well that could permanently stop the leak is ahead of schedule. but it's still expected to be completed during the second week of august. tomorrow, our coverage on the oil disaster continues. >> reporter: i'm jeff yastine on the gulf coast. we'll show you how the oil spill is starting to drag down local real-estate markets. that's tomorrow as we begin our series "jeopardy in the gulf: the future." >> tom: you might think the alternative energy sector would be doing well in the aftermath of the b.p. oil spill catastrophe. but the group, which includes wind, solar, and biofuel stocks, is down for the year, both
before and since the spill. suzanne pratt takes a look at what's clouding the sector, and what the investment prospects are for the future. >> reporter: nothing like thousands of barrels of oil spewing daily into the gulf of mexico to get people looking at alternative energy. but, while interest in the sector has been growing lately, the stocks as measured by the popular wilderhill clean energy e.t.f. have lagged the s&p 500 this year. experts say the declining euro is one of the reasons. government subsidies have made europe a big market for alternative energy companies, particularly wind and solar. and, when sales there are translated back into dollars here, companies see less revenue. on top of that, analyst nate gagnon says another reason many of the stocks haven't done well is that the sector is still considered risky. >> the stocks, especially at a time like this, they're not very appealing to most investors because you can get similar
returns or better returns with a lot less risk someplace else. >> reporter: others, however, currently see excellent investment opportunities in alternative energy. think equity analyst colin rusch says investors with a three to five year time horizon will eventually benefit from strong growth in the sector. >> the need for alternatives and a broader portfolio of energy sources for all economies globally is going to continue to increase. we're not seeing any change to the global secular trend to a more diverse energy sector. what we think is going to happen is the winners are going to win big and losers are going to go away. >> reporter: rusch's top picks include power one, advanced energy industries, and j.a. solar holdings. all trade on the nasdaq and his firm is a market maker in all three. while our need for oil cannot be replaced by most alternative energy sources, experts say the b.p. spill has ramped up political support for the sector in the u.s.
>> i think there's actually a lot of political will for these technologies and the question is what format that will turns into. so, if you're looking at creating jobs, i think there's enormous amount of will and developing new industries. >> reporter: experts caution investing in the alternative energy sector is not for the faint of heart. the stocks can be volatile and swing wildly depending on which way the political winds are blowing. suzanne pratt, "nightly business report," new york.
>> susie: the e-reader price wars heated up again today between amazon and barnes and noble. the first shot came from barnes and noble. it cut the price of its flagship nook to $199 and introduced a low-cost wi-fi only version for $149. amazon was not to be outdone. just hours later, it shot back, slashing the price of its popular kindle by $70 to $189. and, tom, amazon also said it now has more than 600,000 books in its e-bookstore. let's take look at tonight's market focus. the bullishness on the heels of the chinese currency revaluation melted throughout the day,
pushing the major indices into the red. here's the day's trading of the s&p 500. the high price for the day was hit in the first 45 minutes. the index hit its low just 15 minutes before the close. the tech sector was among the worst performing sectors. blackberry maker research in motion was the biggest percentage decliner of the nasdaq 100, sliding 3.6%. other biggies seeing price drops today were microsoft and apple, each falling more than 1%, but volume was lighter than usual for both of them. the china currency decision did help boost china-focused areas of the market. the chinese i-shares exchange traded fund jumped 3.5%. that's its highest price since late april. it holds stocks like china mobile, china construction bank. chinese online search engine baidu.com was the best performing nasdaq 100 stock, rallying. alcoa held that position among the dow industrial components, up 5.5%.
a more flexible chinese currency could help demand for aluminum. we're going to be talking with one of the congressmen negotiating new financial rules in a moment, but a deal today on debit card fees helped boost visa and mastercard shares. visa stock saw more than twice its usual volume as it closed at its highest price in five weeks. the financial reforms regulate interchange fees on debit cards, which are paid by merchants every time a debit card is swiped. but the compromise will exempt the fees charged by visa and mastercard. mastercard stock also got a shot in the arm, up more than 4%. shares had dropped to multi- month lows over worries congress would limit fees. a merger was on the menu in the food business. american italian pasta is the target of a $1.2 billion deal. the offer is for $53 per share, just above tonight's closing price, a sign of confidence the market thinks the deal will get
done. but it wasn't such great news for the buyer, ralcorp holdings. its stock dropped by almost 8%, down to its lowest price since last fall. in addition to the buyout, ralcorp warned its quarterly earnings will be less than analyst estimates, adding to the selling pressure. from pasta to pizza, california pizza kitchen is having a tough time ringing up sales. it took the knife to its quarterly earnings forecast thanks to a bigger than anticipated drop in same store sales. the stock tumbled almost 11% on heavier than usual volume. this is its lowest price since march when shares rallied on a better than expected forecast back then. california pizza has been the target of takeover rumors for weeks. a merger in the medicine business gives specialty drug company biovail a second line of pharmaceuticals. the canadian company specialized in drugs targeting the central nervous system. it's buying valeant pharmaceuticals international and adding products in dermatology and generic medicines. biovail will be the majority owner of the new company, and
shares rallied nicely. valeant shareholders will get the equivalent of $46.46 per share based on tonight's closing prices. drug giant pfizer is pulling a cancer drug from the u.s. market. a clinical study of mylotarg found it wasn't effective and had safety concerns. pfizer voluntarily pulled the new drug application for the medicine. shares of pfizer were slightly weaker on the day. this drug came to pfizer thanks to its buyout of wyeth. meantime, a generally positive test of an anemia drug made by affymax instead hurt that stock. shares lost more than two-thirds of their value after the company reported phase three results for its hermitide anemia treatment. the primary goals were met but in small group of patients saw more problems than the comparison, which could include stroke and death. that's a new low for the stock. and that is tonight's "market focus."
>> susie: new rules from federal regulators today on pay policies for banks. the federal reserve and other regulators say banks of all sizes, not just major wall street firms, need to change the way they pay key employees. specifically, firms should ban bonuses that encourage risky trading activity. today's wording did not set any level for compensation or put a cap on pay. >> tom: negotiations continue tomorrow on rewriting the rules of finance. the house and senate conference committee is working toward a final compromise on financial reform. democratic congressman luis gutierrez is part of those talks. he represents the 4th congressional district of illinois and joins us from the
c.m.e. group in chicago. welcome to "nightly business report." pleasure to be with you. >> lots of key points to remain in these remaining weeks here in june, how to pay for future financial failures are an area that you've been focused on. do you support having the industry pay in to a support before future collapse, what types of companies should be stob that? >> $50 billion or greater. and you can clearly define them. what we do, we do it the same way, similar to the way we've set up the fdic in terms of financial institutions. the bigger you are, the more you pay. but in our instance, the risk here are kinds of business practices that you have or trading practices that you have. so that if you're a large financial institution but you have a lot of the positerers money and making loans for mortgages and commercial institution that is that there is something to show for the money versus you're out there
trading commercial paper and there aren't really a lot of assets to back them up. or maybe, i don't know, you're 15 to one versus five to one. in terms of how you hedge your business. depending on how risky your endeavors are, your financial endeavors are and how you hedge, then you will pay in to the fund. when there is an accident, then there is a fund available. >> tom: should fanly may or freddie mac be subject to paying in to this kind of fund? >> you know, we are not dealing with fannie mae and freddie mac at this particular point. they will obviously after they go through the reception they -- the recession, come back out of receivership. then we can take a look at that. unfortunately -- >> tom: would they be subject to that kind of insurance fund after they're being restructured? >> i don't see why the congress would not look at fannie mae and freddie mac in terms of paying
in to a fund. so that in the future there will be a fund in case there are accesses. given all of the other consideration, is that we have in our regulatory reform package, i think that probably won't happen. i think regulators will enter the much sooner and quicker that's another part of what we're attempting to do. change the structure. >> tom: are you saying, you don't think that kind of regulation would get through congress even after fannie and freddie emerge from receivership? >> i think it will get through congress. we're going to be dealing with that. right now what we have are institutions that are $50 billion or greater, they should pay. it's pretty simple. i kind of look at it this way. if i'm driving a car here in chicago and they pull me over, luiz, do you have a driver's license? yes, did you register the scar yes. did you have insurance? i say, well i haven't had an accident yet, officer, why do i need insurance? that's what we're saying here. to all of those investment
bankers and other bankers on wall street, listen, we know you're licensed, and we know that you're registered just want to you take out insurance before you have an accident. >> tom: congressman, it is important to point out this wouldn't necessarily exclude taxpayers from paying should there be any future problems, the fdic wrote that any temporary use of government assistance would occur only if and when the industry funding is depleted. chew that temporarily funding work, is that being addressed? >> here is how we do it. in our proposal. we say, first of all, there's a $150 billion fund. it's funded by financial institutions that are $50 billion or greater. it's kind of like the fdic fund. now, sheila bear said she would use the same kind of rig or that the fdic at 75 years of existence to make sure that it's run in a great way. >> tom: congressman, what happens to -- what happens after that first $150 billion?
the industry could burn through that pretty quickly. >> it could. then i would have to come back to congress before one additional cent could be spent. >> tom: okay. >> the first $150 billion must be put up by the financial institutions and then if sheila bear would need to go back, she can borrow from the fed more than $150 billion. but first of all the president would have to be informed. >> tom: just a half minute left i want to get your shots on the so-called volcker rule, this sen doored by the president back earlier this year would ban banks from trading own money, owning or investing in hedge funds or in private equity. do you agree with these restrictions? >> absolutely. i am a strong supporter of the volcker rule, it's more than their own money, isn't it? it's fdic, like at my bank. my funds are fdic insured. billions of dollars are insured.
they shouldn't be able to go today, the futures are good, right on the dow jones let's take $100 million. >> tom: you don't exclude -- you exclude them from hedge funds and private equity investing? >> you want to know something? if you want to have a hedge fund then call eight hedge fund. then you can do all of the risky things you want to do but it's not insured money. this is money that you go to the fed at the discount window and borrow at cheap prices then use it for pry pry terry purposes, that's wrong. >> tom: we appreciate the insights. our guest this evening the cme group democratic congressman luiz gutierrez. >> susie: here's what we're watching for tomorrow. quarterly results from software giant adobe systems and drugstore chain walgreen. the federal reserve's interest- rate policymakers begin a two- day meeting, their decision is expected wednesday. interest rates are expected to remain low for a prolonged period of time; we'll look at what that could mean for consumers and the economy.
connecticut's attorney general is taking the lead into a multi- state investigation of google. a feature on the search engine called street view has raised privacy concerns because it can be used to identify specifics like houses. google says the feature, and the data on it, does not break any laws. but connecticut's top lawyer, richard blumenthal, disagrees saying street view invades home and business information networks. >> tom: look for a good story from saab. the automaker's new dutch owner hopes to double vehicle sales this year. spyker cars says the saab brand is now stable and now that credit conditions are easing up, customers have money to spend. spyker bought saab from general motors earlier this year for $400 million, keeping the brand alive. last year, saab sold just 8,600 cars in the u.s. a decade earlier that number was 41,000.
>> susie: with the global economy still coming out of its recession misery, there are several lessons the u.s. can learn from europe's recent debt crisis. here's richard dekaser, president of woodley park research, an economic consulting firm in washington. >> the message from europe over the past two months is loud and clear: too much government debt, especially to foreign investors, is bad for our economic destiny.
so long as creditors have faith in our ability to make good on our debts, everything appears fine. funds are readily available at reasonable rates of interest. but once confidence slips, capital flees, interest rates soar, and we become slaves to capital markets, scrambling to assuage their concerns on their terms and on their schedule. while the united states is not in the same position as, say, greece or spain, that's definitely where were headed. our debt-to-g.d.p. ratio began this decade at 33%, now stands at 60% and will hit 65% next year-- its highest share since the early 1950s. foreign investors now account for almost half of our outstanding balances. and if the hidden liabilities implicit in the entitlement programs such as social security are rolled in these metrics increase about 50%. while economists debate the precise level of debt that may trigger a crisis, most agree that were advancing into the danger zone. ultimately, this is a political, not an economic, problem which is where the opportunity lies. the bipartisan debt commission, packed with centrist moderates with strong credentials as deficit hawks, is due to present its recommendations december
first, after the upcoming elections and as far as possible from the next. no doubt, they will propose all the tough medicine: extending the retirement age, trimming social security benefits for the most affluent, better enforcing tax collections, and ending corporate welfare. the debt commission may not be our last, best hope, but it certainly is our best. failure to seize the opportunity would be tragic. i am richard dekaser. >> tom: that's "nightly business report" for monday, june 21. i'm tom hudson. goodnight everyone, and goodnight to you too, susie. >> susie: good night, tom. i'm susie gharib. goodnight everyone, we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible